Investec PMI suggests marked slowdown in manufacturing sector
After holding up at 54.3 in December, the seasonally adjusted Investec Purchasing Managers Index (PMI) declined 2.2 index points to 52.1 in January. “The January survey revealed a notable deterioration in business conditions within the manufacturing sector. This is not unexpected, given the electricity shortages, continued pressure on commodity prices and slower growth in demand,” said André Roux, head of fixed income at Investec Asset Management.
“Although it is encouraging that the manufacturing sector continued to expand, the underlying trends show a marked slowdown in the sector,” he added.
While growth in output and employment accelerated during December, growth of new sales orders and inventories declined. In January, the seasonally adjusted business activity index declined sharply to just above the critical level of 50, implying a significant slowdown in output growth. New sales orders declined to their lowest level in January since early 2006.
In addition, the seasonally adjusted inventory index reached 52.3, its lowest reading in two years. “This signals caution on the part of purchasing managers, and coupled with a decline in purchasing commitments, indicates a somewhat weaker near-term outlook,” Roux said.
This corresponds with the index measuring expected business conditions in six months’ time, which were sharply lower and at their lowest level since the survey commenced in 1999.
Both months witnessed increases in the PMI price index, a substantial jump from 70.2 in November to 77.0 in December, and a further increase to 79.5 in January. “The interrupted power supply, the slight depreciation of the rand, as well as high commodity prices continue to exert pressure on input costs,” Roux said.
Encouragingly, however, the seasonally adjusted employment index remains firm. After reaching 57.0 in December, January saw a marginal decline to 56.2.
Graph and table (click to enlarge):
Investec Purchasing Managers Index: Results for January 2008
(Click to enlarge image)
The survey is conducted on a monthly basis by the Bureau for Economic Research at the University of Stellenbosch in conjunction with the Institute of Purchasing Managers in South Africa and sponsored by Investec Asset Management.
